Insider trading probe slows

Phil Mickelson was in the news this weekend, but not for his usual performance on the golf course. He’s being investigated for alleged insider trading along with investor Carl Icahn and sports bettor William Walters, but things aren’t going according to plan.

The Wall Street Journal story by Michael Rothfeld and Susan Pulliam reported that the breaking news caused the investigation to stall:

A snag has hit the insider-trading investigation of investor Carl Icahn, golfer Phil Mickelson and sports bettor William “Billy” Walters: News of the probe derailed government efforts to secretly deploy wiretaps, which have been key components of many successful insider-trading cases.

Criminal and civil investigators are examining whether Mr. Icahn tipped Mr. Walters about his plans relating to stocks of several companies, including Clorox Co., according to people briefed on the probe. The investigation was first reported by The Wall Street Journal on Friday. Messrs. Icahn, Walters and Mickelson have denied any wrongdoing.

Mr. Walters on Sunday declined to comment on the latest development, and Mr. Icahn didn’t return calls for comment.

On Saturday, speaking to reporters after the third round of a tournament in Ohio, Mr. Mickelson said he has done “absolutely nothing wrong.” The famous golfer said he was “fully cooperating with the FBI agents” and wouldn’t let the probe distract him from golf.

Authorities were considering the use of wiretaps in the investigation of the financier, gambler and golfer, people briefed on the probe said. Meantime, investigators were using other types of electronic and human surveillance in the probe, the people said.

In recent weeks, potentially promising surveillance through such methods had picked up in activity, the people said.

Ben Protess and Matthew Goldstein of The New York Times had these details about the trades under investigation:

In the summer of 2011, a series of winning stock trades raised immediate red flags for financial regulators.

The traders — a cross-section of investors including the championship golfer Phil Mickelson and the high-rolling gambler and golf course owner William T. Walters — collectively reaped several million dollars betting on the consumer products company Clorox and one other stock, according to people briefed on the matter who spoke anonymously because they were not authorized to discuss the investigation.

The trades, options contracts to buy Clorox stock, came just days before the billionaire investor Carl C. Icahn announced an unsolicited takeover bid for the company that drove up the stock price. And trading records indicated that the bets came not just from Mr. Mickelson but also from at least one other investor connected to Mr. Walters and the golfing world, one of the people briefed on the matter said. That investor, another person said, is not now under investigation.

The previously unreported details about the size and scope of the trading, emerging a day after a federal insider trading investigation first came to light, might seem to stack up in the government’s favor. As federal authorities examine whether Mr. Icahn leaked details of his Clorox bid to Mr. Walters, the people said, they are exploring a theory that Mr. Walters might have passed the information to Mr. Mickelson.

Forbes reported in a story by Nathan Vardi that the probe may not actually lead to any charges or action:

But on the surface it seems like the investigation might not rise to the level of a federal prosecution or even a regulatory enforcement action. The investigation, which is reportedly being led by the Federal Bureau of Investigation and the Securities & Exchange Commission, has been going on for years. Icahn told news outlets on Friday that he did not know about any investigation and did not know Mickelson. Icahn called the suggestion that he was involved in improper trading “inflammatory and speculative.”

The investigation appears to be looking at whether Icahn leaked details of his failed takeover bid to Walters, who Icahn does know, and Mickelson. Both Walters and Mickelson reportedly traded in Clorox stock around the time of the takeover bid. As The New York Times pointed out yesterday, it would not be illegal for Icahn to leak details of a future trade and since he never joined Clorox’s board, he would not know any material confidential information about he company. Indeed, Clorox fought the veteran activist investor every step of the way

For his part, Mickelson denied any wrongdoing before hitting the course this weekend, Ray Slover reported for Sporting News:

“I have done absolutely nothing wrong,” Mickelson said in a statement. “I have cooperated with the government in this investigation and will continue to do so. I wish I could fully discuss this matter, but under the current circumstances it’s just not possible.”

He did not speak to the media before beginning third-round play at the Memorial Championship in Dublin, Ohio.

This story has everything – insider-trading investigation, big named investors, a shady Las Vegas gambler and a pro golfer. It will be interesting to see if the government pushed forward with charges now that the story has broken or if they end up backing off the case. Either way, it’s a blemish on the names of all involved, but might end up making the government regulators look the weakest if nothing comes of it.